Good day, ladies and gentlemen and welcome to the Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to CFO, Mr. Bob Bondurant. Please go ahead, sir.

Okay. Thank you, Andrew. And to let everyone know who is on the call today, we have Ruben Martin, our CEO; Joe McCreery, who is our VP of Finance and Head of our Investor Relations; and Wes Martin, our VP of Corporate Development. Before we get started with the financial and operational results for the second quarter and the year, I need to make this disclaimer. Certain statements made during this conference call maybe forward-looking statements relating to financial forecast, future performance and our ability to make distributions to unitholders. We report our financial results in accordance with generally accepted accounting principles and use certain non-GAAP financial measures within the meanings of the SEC Regulation G such as distributable cash flow or DCF, and earnings before interest, tax, depreciation, amortization, or EBITDA, and we also use adjusted EBITDA. We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior reported results, and it can be a meaningful measure of the partnership’s cash available to pay distributions. We also include in our press release issued yesterday a reconciliation of EBITDA, adjusted EBITDA, distributable cash flow and quarterly adjusted EBITDA guidance to the most comparable GAAP financial measure. Our earnings press release and our 10-Q, which was also filed yesterday, are available at our website, martinmidstream.com. Now, I would like to discuss our second quarter performance compared to the first quarter and also discuss our second quarter performance compared to our second quarter guidance. For the second quarter, we had adjusted EBITDA of $33 million compared to $46.8 million in the first quarter. Our distributable cash flow for the second quarter was $19.6 million, which provided a quarterly distribution coverage of 1x on our distribution pay in the second quarter. Also…

Thanks, Bob. I will start with the normal walk-through of the debt components of our balance sheet and our bank ratios provide a quick update on our Hondo Asphalt Terminal, and I will keep my comments brief this morning reflecting what was a relatively quiet quarter for the partnership. On June 30, the partnership’s balance sheet reflected total long-term debt of approximately $780 million. Our balance sheet funded debt is shown before unamortized debt issuance and unamortized issuance premiums as actual funded debt outstanding was $788 million. Reconciling this amount at quarter end, our revolving credit facility balance was $414 million, and the notional amount of our senior unsecured notes was $374 million. Thus, the partnership’s total available liquidity under our revolving credit facility on June 30 was $250 million, based on our $664 million revolving credit facility. For the quarter ended June 30, our bank compliant leverage ratios defined as senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA, were 2.45x and 4.67x respectively. Our total leverage increased by approximately 25 basis points from the March 31 level, which is typical given the seasonal working capital swings we normally experience during the second and third quarters pertaining a large part to our butane business. During the second quarter of 2017, we opportunistically purchased and stored more butane than forecast. In fact, as of June 30, we have stored approximately 80% of our full year winter fill inventory, meaning working capital increases during the third quarter will be lower than forecasted, pertaining specifically to NGL volumes. As we highlighted in our earnings release yesterday, year-over-year leverage at June 30 improved by approximately 10 basis points. I note in particular that this inclusive of a larger-than-forecasted inventory build on butane. So clearly the partnership’s de-levering initiative are continuing…

[Operator Instructions] And our first question comes from the line of Matt Schmid with Stephens. Your line is now open.

Hey, good morning guys.

Hey, Matt.

Just looking for an update on WTLPG, is the tariff decision still expected next month and how should we be thinking about guidance for the second half? I mean I know its kind of up in the air, but should we just sort of go with what’s previously been out there?

Yes, Matt, this is Ruben. We have been working it really hard and we were expecting originally to have a hearing in October and that is still our expectation right now on that with the actual railroad commission. The administrative law judge will be making recommendations. One of the plaintiffs, Targa, has tried to reopen the case and do some things to slow things down and we are in the process of fighting that particular reopening of the case. I don’t believe it will happen at all. And so right now, we are waiting on the administrative law judge. We expect to have a hearing in October. And hopefully, we will have some sort of resolution by the end of the year. And since it’s been going on 2 years now, we fully expect to recover back and going forward. So we have put in some for this year, hoping to have it by the fourth quarter. But right now, it’s still going and going good and we have been working it hard and we feel good about the case.

Okay, great. I appreciate the update. Then shifting over, I guess just to the quarter and operating expenses. Obviously, you all have had some asset sales, but trends have been good the past few quarters. What have been sort of the main drivers on the cost savings? And do you think there is additional opportunities out there for savings on the – just from the OpEx side?

Well, generally on the OpEx side, we have been eliminating some of our older marine vessels over time. Some of that were – had high, very high operating costs. And when you do that, you also, unfortunately, sometimes have to eliminate personnel that go with those vessels and we continue to rationalize cost in the offshore business. We have shrunk our number of operating terminals from a peak of about 34 or 35 to currently I believe it’s 17. So, really it’s been on primarily on the Marine Transportation side and on the offshore shore-based side.

Okay, great. Thanks. That’s helpful. Well, I appreciate the color. Thanks, guys.

You bet.

And our next question comes from the line of Gabriel Moreen with Bank of America/Merrill Lynch. Your line is now open.

Hey, good morning, guys. I am intrigued by the potential for butane – the butane marketing business here given what’s happened to – or happening to butane pricing. Can you just – I know you typically build working capital. Is this something where hey, depending on the volatility in the market, you could actually elect to maybe turnover some inventory sooner than expected? So I am just wondering if you can just put in context for the volatility we are seeing within that market, which obviously hurts you at least from a paper write-down standpoint in the second quarter, but it would appear to have the potential for benefit, going forward?

Yes, Gabe, you have to remember is that a lot of the products that we are getting into, we are obviously doing it, because we have supply obligations into the wintertime, obviously, in the third quarter and the fourth quarter as the refineries start taking it back. And a lot of the products that we have in storage are in the field. When I say in the field, they are not directly at Mont Belvieu, they are in Louisiana – they are in North Louisiana, they are at different locations and they have already been contracted to go in and they come in by rail and truck and they go out by rail – a lot of rail and then some truck, depending on the needs of the refineries. And so the decision that you have is determining where those are. And they go out at substantial differentials. So you are buying on discounts and you are selling on premiums and that’s what determines the location, where you are and when you take those profits. So, it’s really more of a hedging situation that we can do at any time and are doing constantly to determine how to manage that inventory.

And just to further that point, so what basically you have said, we pretty much have sales obligations, but to the extent we can be opportunistic and we have been in the past, we may sell some volumes if it’s not going to impact the long-term commitments to our customers.

Yes. Gabe, this is Joe. I think that – to further what Bob just said – exactly right and where we have been opportunistic, I think is on the buying side. As we said, we are overweight where we thought we would be from a inventory-fill perspective at this point in the calendar year. So we have got a little tailwind. I give credit to our guys for getting in and buying barrels when they did.

Yes. No, I hear that. And I was just wondering, the curve is backward dated, but it sounds like – I get the sales obligations and the hedging, but maybe some opportunistic stuff as well. That was helpful. And then just final question from me is just on the maintenance CapEx saving, not to be nitpicky, but is that something which is more a timing thing or should we think that that’s actually kind of more of a sustainable reduction to M CapEx?

Yes, I think it’s both. I think there are some timing issues, but I think we were – some rationalization has also occurred. So, I think the spending was lower.

Got it. Thanks, everyone.

Thank you.

Thank you.

And our next question comes from the line of Mike Gyure with Janney. Your line is now open.

Yes. Can you maybe touch a little bit on the margins in the Terminalling and Storage business going from, I guess, the first quarter and the second quarter, your margins looked a little bit weaker. Is that really a function of kind of the product mix there or anything else going on there?

Wait, this storage business you are talking about, you are talking natural gas storage?

No, in the Terminalling side.

Yes. So buried in that is our lubricant business, our Mega Lube business and our packaging business and so – which is a lubricant-based business, both. And when Mega Lube is for port shipments, marine vessels, primarily international vessels and then the packaging business is our business that’s near our refinery and the smack over is actually next to it. We have just had the ability to expand margins. The markets need to be a little bit tighter. We are getting into some new customers and growing the business, but with that growth have been sustained stronger margins. And we have been growing the grease business, which is kind of a below-the-radar kind of business, almost a subset of the lubricant business if you will and that’s been a good growth area for us that has allowed us to expand margins as well.

And I will add. We have done a lot of work in the last 18 months concerning our packaging of our different types of lubes and new type of packaging that’s easier for the customer, more customer-friendly when it comes to both products, not only the lubricants, but the grease. And so we are increasing our market there and obviously in any increasing market, since it’s fairly tight, we are seeing some increase in margins.

Great. Thanks very much.

And our next question comes from the line of Kyle May with Capital One Securities. Your line is now open.

Hey, good morning everybody.

Good morning, Kyle.

Just a couple of quick ones for me. I was going to see if you could give us any kind of updates on the assets held-for-sale?

Yes. So, I mentioned that probably about – I mentioned the majority of it, probably 60% of the assets held-for-sale, are under contract. That is as we sit today that’s supposed to be realized in September. We have had a couple of extensions, so roughly $7.5 million of that is due to come in, in September and we have two other significant assets that we are negotiating that make up the balance of that number, but we have not come to a signed contract yet. And then just to reiterate, those assets are non-revenue producing, haven’t produced revenue in a long time. So, to the extent we raise capital, it is a pure de-leveraging event.

Okay, thanks for that. And one follow-up, it looks like the Cardinal gas business is continuing to improve. How do you see that shaping up in the back half of the year?

Hey, this is Wes. I will comment on that. I think in general, the strength that we have seen on the interruptible side continues and we expect that to continue, maybe to a little bit lesser extent on the back half of the year. Spreads, just in general, are tight which is not necessarily a great thing for us long-term as we sort of look out into 2018. But with that, we have seen that the interruptible side helped to offset that. So, I think when you look at the rest of this year, we see continued strong performance relative to budget and by the end of this year, would not be surprised if we were above budget by, let’s say, $1 million plus or minus. I know we didn’t revise guidance, but in general, it seems like the back half of this year continues to feel comfortable at this point.

Thanks a lot. That’s all for me today.

And our next question comes from the line of TJ Schultz with RBC Capital Markets. Your line is now open.

Great, thanks. Good morning, guys. What’s the level of engagement with the lender right now? They obviously sold [indiscernible] to some group, but on your end, do you feel there is appetite? Therefore, a lender to provide support from future transactions maybe joint type deals that could ultimately be de-levering for you or accelerate your de-levering or is your focus more on executing these identified asset sales and just blocking and tackling around the base business?

Yes, this is Wes. I think the latter. The lender, of course, is – it has been supportive in the boardroom and there obviously they do have – they do sit and we have got constant dialogue and interaction with them. But I think the message from the board and management is continuing to block and tackle, de-leverage focus on our coverage. I know that we have said that for the last few quarters now and that continues to be the path forward on the leverage side. You mentioned the asset sales to the extent that those do occur in the next 6 months, that’s going to help in the de-leveraging effort, but yes, that’s our laser focus right now.

Okay, that’s all I had. Thank you.

Thanks.

And I am not showing any more questions. So with that said, I would like to turn the conference back over to CFO, Bob Bondurant, for any further remarks.

Okay. Thank you, Andrew. And just to reiterate, we did have strong coverage for the quarter and have had very strong coverage for the first 6 months, which helps us to improve our balance sheet and we believe that this balance sheet improvement best positions the partnership for the long-term so that eventually we can get back to a path of growth. And we continue to affirm our guidance of 1.2x for 2017. Appreciate everybody’s participation today. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.